This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

S&P Case-Shiller Indices May Be Overstating Home Price Gains: Zillow

NEW YORK ( TheStreet) -- Home prices rose 12.2% year-over-year in May, according to the widely followed Case- Shiller 20-City Composite Index.

But the index may be overstating the extent of home price appreciation according to Zillow economist Svenja Gudell.

In a blog post published Tuesday, Gudell argued that the Case- Shiller Indices are giving an "inflated sense of national home value appreciation" because they are biased towards the large, coastal metro areas that are currently seeing large gains.

Trulia economist Jed Kolko previously made a similar point in his great primer on how the various housing indices are structured.

According to Kolko, the New York and Los Angeles metros together account for 48% of the Case-Shiller Composite 10 index and 35% of the Composite 20 index (based on weights in the published methodology).

Gudell stressed that the Case-Shiller indices do not adjust for foreclosure sales. The share of foreclosure sales is declining so the index is likely improving simply because a different mix of homes -- more conventional, less distressed -- are being sold.

Foreclosure discounts to market prices are also narrowing in rapidly rising markets. As a result, the index is given an artificial boost and does not really the actual market improvement.

Zillow's own Home Value Index does not include foreclosure sales. Zillow expects home prices to show year-over-year increases of 5.8% for June, with price gains likely slowing to 5% between June 2013 and June 2014.

The Home Price Index from LPS also adjusts for the discount of foreclosure sales. According to LPS, home prices rose 7.9% year-over-year in May, still lower than the Case-Shiller Index.

Zillow forecasts the Case-Shiller Indices every month. Because its Zillow Home Value Index and foreclosure data is available a month in advance of Case-Shiller, it says it is able to reliably forecast the S&P Indices.

Zillow forecasts the S&P Case-Shiller 20-City Composite Index to show another 12.1% annual increase in June.

But don't you go believing it.

-- Written by Shanthi Bharatwaj New York.

>Contact by Email.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
XHB $36.44 -0.92%
SPY $209.29 -0.13%
IYR $75.43 -0.34%
AAPL $118.99 1.00%
FB $104.46 -0.94%


Chart of I:DJI
DOW 17,786.37 -12.12 -0.07%
S&P 500 2,088.59 -1.52 -0.07%
NASDAQ 5,119.2540 -8.2710 -0.16%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs